Multifamily Trends in NYC, New Jersey: Similarities and Differences

Circle Squared Alternative Investments CIO Jeff Sica weighs in on the region's multifamily market and what renters will be drawn to once the crisis subsides.
Jeff Sica, CIO, Circle Squared Alternative Investments. Image courtesy of Circle Squared Alternative Investments
Jeff Sica, CIO, Circle Squared Alternative Investments. Image courtesy of Circle Squared Alternative Investments

New rent-control regulations in New York City have impacted the market’s multifamily sector and put off certain investors. “Because of this, buildings with rent-stabilized units will be valued lower and will ultimately weaken the city’s tax base,” Jeff Sica, CIO of Circle Squared Alternative Investments, told Multi-Housing News. On the other hand, New Jersey continues to be a desirable area for multifamily investors due to its proximity to two of the country’s largest employment centers, according to Sica.

In the interview below, he weighs in on how residents’ needs are bound to change after the pandemic and what developers can do to meet their demands. Sica also shares how COVID-19 has impacted the company and its projects, as well as his view on how the multifamily market is expected to recover once the crisis passes.

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What makes the New York and New Jersey areas favorable multifamily investment opportunities?

Sica: We are not as enthusiastic about the New York City multifamily market, but we remain fully committed to the Northern/Central New Jersey market. The passing of rent regulations in the Housing Stability and Tenant Protection Act of 2019 has made New York City multifamily less desirable at this time and we believe this has and will continue to drive interest into the Northern New Jersey market, which will increase competition as well as investment.

We feel strongly that Northern New Jersey will remain an attractive residential location as the high rental rates in New York City and the surrounding boroughs continue to drive residents to New Jersey’s communities. The Hudson River Waterfront continues to attract relocations of tech, financial and consumer products firms. With two of the country’s largest employment centers within a short commute, demand for Northern New Jersey multifamily will continue to be strong.

Tell us about your company’s recent projects and why these stand out. 

Sica: NJCU West Campus is a 21-acre redevelopment that, when complete, will consist of four multifamily buildings, a campus dorm, a performing arts center and a grocery-anchored shopping center. This project represents a successful public-private Partnership, which will bring approximately $1.4 million annually in revenue to the school. The first project, The Rivet, in which we partnered with The Hampshire Cos. and the Claremont Co., received the 2018 Excellence Award from ULI Northern New Jersey and the project itself is one that we believe has set the stage for a whole new market in Jersey City on the West Side.

The Rivet. Image courtesy of Circle Squared Alternative Investments

What are three trends that define multifamily development/redevelopment today in the New York-New Jersey region?

Sica: I believe that the COVID-19 pandemic has accelerated some trends in the multifamily market domestically but especially in Northern New Jersey. I think renters will be forever changed by this experience and amenity packages will become a larger driver in their rental decisions. There will be a rush from developers to deliver the most robust amenity package in order to differentiate themselves from competition.

Additionally, I believe that development will begin to include more smart home features such as automated parcel delivery lockers and keyless entry, as well as being connected through Alexa or Google Home. Lastly, I anticipate that we will see heightened demand for bigger apartments. After spending months holed up in a small apartment, I believe that larger units will look increasingly more attractive, especially to young families.

How do you see the New York and New Jersey areas transforming in the future? 

Sica: The New York City market will continue to battle rent control laws, which limit rent increases after owners make major improvements, even after units become vacant and the rents have not been raised for years. We believe these new rent regulations will cap expected revenue gains through the life of a property and will force developers to rethink their investment.

New Jersey and areas like Westchester County, N.Y., will remain an attractive place to live and, in turn, a great place to own multifamily. We believe Class A buildings with robust amenities and accessible rents will continue to be in demand. The live-work-play concept will be prominent in future development in these areas, and communities at the far end of train lines from major cities will begin to see substantial growth and investment. Our goals continue to be to provide high quality, sustainable properties that meet the needs of our tenants and the communities we invest in. We will continue to search for properties in communities that we believe to be ascending.

Why are transit hub developments in high demand in the area?

Sica: Transit-oriented development has been the flavor of Northern New Jersey multi-development for some time now and for good reason. With demographic trends shifting more and more to demand for walkable cities and the proliferation of ride-sharing services, fewer people are owning cars and are looking for communities with multiple commuter options to major employment centers. Communities that offer shopping and dining in a downtown, walkable setting will continue to thrive. These are the most desirable development sites for good reason and the competition continues to increase, which makes strong opportunities harder to uncover.

An example of a transit hub development for us is our Project City Line in Bayonne. Bayonne offers exceptional access to the Hudson Light Rail System and will soon offer direct ferry access to New York City. Bayonne, unlike some of its Hudson County Waterfront neighbors, is still an attainable, cost-effective place to live, with tremendous walkability in a town with a strong sense of community. We believe that with a forward-thinking city government, Bayonne is poised for massive growth over the next 5 to 10 years.

What are your plans regarding transit-oriented development?

Sica: We are always seeking to uncover the right opportunities in markets like Montclair, Morristown, Summit, Jersey City and the Greater Hudson County, but demand and competition for these sites continues to be robust. We have begun to find some niche deals in communities that share many of these same characteristics but are a little further down a train line. These properties will offer residents greater value, which is a segment often overlooked in the Class A transit-oriented market in Northern New Jersey. A lot of these towns are just starting to see revitalization and the best is yet to come.

How has COVID-19 impacted your projects?

Sica: With all our projects, we are abiding by the guidance provided in the governor’s halt of all nonessential construction. Depending on where we are with a specific project in the development process, we have been affected differently. The toughest aspects for us have been regarding municipal shutdowns, staff shortages, increased workloads and budget restraints. Because of the current state, it has been increasingly difficult to get inspections or complete permitting.

The first few weeks of COVID-19 also saw a dramatic decrease in planning board/approval meetings. Some are now being done virtually, but missed meetings have pushed some deadlines back. Moving forward, any delays in elections could also have an impact on projects in the queue for approval, pushing back a lot of people’s expected timelines.

What measures are you taking to handle coronavirus-related business challenges?

Sica: From a business standpoint, we have policies and procedures in place to work remotely and we are perfectly set up to execute virtually. We are constantly working with our partners to monitor our tenant base and ensure we are meeting their needs. We have a team of accountants and lawyers that we are in constant contact with to ensure our projects are evaluating options from any new state or local laws, as well as review any potential federal stimulus packages that might affect our projects. Additionally, we are looking into new and innovative ways to show our apartments, i.e., virtual tours.

How do you expect the multifamily market to recover following the crisis?

Sica: The multifamily market, especially in this area, has always been one of the first sectors to recover from an economic downturn. During the Great Recession, multifamily rents were more resilient than those of office, industrial and retail. Multifamily rents have outperformed those of the other major property sectors during and after the Great Recession in multiple ways. The sector experienced the lowest level of rent decline, the fastest recovery to pre-recession peaks and the longest post-recession period of rent growth.

While the COVID-19 outbreak is very different from the last few recessions, we are seeing, anecdotally, that people now have even stronger respect and appreciation for having a nice place to live. Unemployment levels remain an uncertainty, but, for properties located around major employment centers within transit hubs, we believe these projects should fair better as we enter recovery.  Also, we believe this crisis and economic downturn will have lasting negative effects on the already record-low levels of homeownership.